Zero Based Budgeting: How To Implement It In Your Organisation
Zero-based budgeting is the process of starting every budget and financial year at a point of zero and building up from there, rather than starting at a financial year-end figure and budgeting from there. It was developed in the early 1970s by a group of financial analysts in the UK and is a process that is popular with financial institutions but has not been adopted by organisations outside of this sector.
What is it?
Zero-based budgeting has been described as the “most basic” form of budgeting. This is because it is the most basic of all budgeting processes and it involves starting with a clean slate.
Zero-based budgeting is a budgeting methodology that starts with a zero base and is used to build the budget of a company on a recurring basis.
Zero-based budgeting is part of the total quality management process and it has many advantages over the traditional budgeting practice. It ensures a balanced budget and eliminates the risk of overspending due to the lack of a previous budget.
- It can be thought of as having the following characteristics :
- It starts with a blank slate and is not based on any previous year’s figures
- It is very ‘bottom-up’ and is based on the activities and resources that will be required to achieve the organisation’s goals
- It is based on the organisation’s needs rather than on the previous year’s financial results
- It is not based on a predetermined set of financial targets, but rather on the organisation’s goals and the activities that will be required to achieve them
The Process
The process of zero-based budgeting can be broken down into the following steps:
1) Start with a blank slate :
The idea behind a blank slate is to have a clean sheet of paper to start a new financial year and build from there. This is done so that you do not have any preconceived ideas and you can begin the year with a blank sheet of paper.
2) Identify the goals and objectives of the organisation:
The goals and objectives are the most important part of the budget and should be defined by the senior management. These goals and objectives should be made clear to the employees and should be communicated to them so that they know what is expected of them.
3) Identify the activities that will be required to achieve these goals:
The activities required to achieve the goals and objectives should be identified and then assigned to the various departments and their respective employees. This is done to ensure that the employees understand what they have to do and the number of resources they will require to complete the tasks.
4) Process improvement to build efficiency and cost optimisation:
The existing processes should be revisited and opportunities for improvement should be identified. The optimised process should be used as a base to identify the required resources.
5) Identify the resources that will be required to achieve these activities:
The resources required to achieve the goals and objectives should be identified and then allocated to the employees responsible for achieving them. This is done so that the employees can plan and identify the activities that they will be required to do.
6) Establish a budget that is based on the organisation’s goals and the activities that will be required to achieve them:
The budget should be based on the goals and objectives of the organisation. Once the goals and objectives are defined, the employees should be given the responsibility to determine the activities that will be required to achieve them.
7) Establish a budget that is based on the organisation’s needs and the activities that will be required to achieve them:
The budget should be based on the needs of the organisation. This is done so that the employees are aware of the resources required to achieve the goals and objectives of the organisation.
8) Review the budget and make adjustments to it where necessary:
The budget should be reviewed and adjusted where necessary. The budget should be reviewed to ensure that it is achieving the goals and objectives of the organisation.
9) Monitor the budget to ensure that it is achieving the goals and objectives of the organisation:
The budget should be monitored to ensure that it is achieving the goals and objectives of the organisation. The employees should be given the responsibility to review the budget and make any necessary adjustments.
Why it is important
The main reason for adopting zero-based budgeting is that it helps to prevent the budgeting process from being influenced by past performance.
It is important that the budget is not based on a predetermined set of financial targets, but rather on the organisation’s goals and the activities that will be required to achieve them. It is also important to ensure that the budget is based on the organisation’s needs and the activities that will be required to achieve them. This is because it is impossible to predict how many resources will be required to achieve a given goal, and the organisation may need more resources than originally planned.
It is also important that the budget is reviewed on a regular basis to ensure that it is achieving the goals and objectives of the organisation. This is because the budget may need to be adjusted during the year to reflect the organisation’s changing needs and circumstances.
It is also important that the budget is realistic and that it is not based on unrealistic expectations. This is because if the budget is based on unrealistic expectations, it is likely to be unrealistic and the organisation may not achieve its goals.
Finally, it is important to ensure that the budget is not based on an outdated financial model. This is because it is possible that the financial model that was in place when the budget was developed may no longer be applicable to the organisation.
Why it is used
The main reason why organisations adopt zero-based budgeting is to prevent the budgeting process from being influenced by past performance.
It is important that the budget is not based on a predetermined set of financial targets, but rather on the organisation’s goals and the activities that will be required to achieve them. This is because it is impossible to predict how many resources will be required to achieve a given goal, and the organisation may need more resources than originally planned.
It is also important that the budget is based on the organisation’s needs and the activities that will be required to achieve them. This is because it is impossible to predict how many resources will be required to achieve a given goal, and the organisation may need more resources than originally planned.
It is also important that the budget is reviewed on a regular basis to ensure that it is achieving the goals and objectives of the organisation. This is because the budget may need to be adjusted during the year to reflect the organisation’s changing needs and circumstances.
It is also important that the budget is realistic and that it is not based on unrealistic expectations. This is because if the budget is based on unrealistic expectations, it is likely to be unrealistic and the organisation may not achieve its goals.
It is also important that the budget is not based on an outdated financial model. This is because it is possible that the financial model that was in place when the budget was developed may no longer be applicable to the organisation.
Finally, it is important to ensure that the budget is not based on an outdated financial model. This is because it is possible that the financial model that was in place when the budget was developed may no longer be applicable to the organisation.
Why it is not used
The main reason why organisations do not adopt zero-based budgeting is that it takes too long to complete.
It is important that the budget is not based on a predetermined set of financial targets, but rather on the organisation’s goals and the activities that will be required to achieve them. This is because it is impossible to predict how many resources will be required to achieve a given goal, and the organisation may need more resources than originally planned.
It is also important that the budget is based on the organisation’s needs and the activities that will be required to achieve them. This is because it is impossible to predict how many resources will be required to achieve a given goal, and the organisation may need more resources than originally planned.
It is also important that the budget is reviewed on a regular basis to ensure that it is achieving the goals and objectives of the organisation. This is because the budget may need to be adjusted during the year to reflect the organisation’s changing needs and circumstances.
It is also important that the budget is realistic and that it is not based on unrealistic expectations. This is because if the budget is based on unrealistic expectations, it is likely to be unrealistic and the organisation may not achieve its goals.
It is also important that the budget is not based on an outdated financial model. This is because it is possible that the financial model that was in place when the budget was developed may no longer be applicable to the organisation.
Finally, it is important to ensure that the budget is not based on an outdated financial model. This is because it is possible that the financial model that was in place when the budget was developed may no longer be applicable to the organisation.
How to overcome resistance to change when implementing Zero-based budgeting
As zero-based budgeting starts with zero which ultimately questions the existing processes and builds the budget from zero, there will be a lot of resistance. The resistance could be for multiple different reasons and all need to be addressed in a certain manner for the successful implementation of Zero-based Budgeting.
Start by having a formal meeting with the key stakeholders. You need to have the buy-in from the top and that can be done only if the people at the top understand what you are trying to do. The first step is to have them understand what zero-based budgeting is and why it is necessary.
You need to have a clear vision for Zero-based Budgeting. This is necessary because people who don’t understand why zero-based budgeting is necessary will just think that this is just another gimmick.
You need to identify the pain points and how will Zero-based Budgeting will help. This will help you understand what people are expecting from you.
It is important to understand that Zero-Based Budgeting is not just about budgeting, it is also about management, and it is also about people.
The most important part of the process is to understand that you are changing how people think about budgets. The key is to understand the pain points. Once you understand what people are expecting to change, you can then identify the pain points that need to be addressed in order to achieve that change.
You need to address the pain points. The most important pain points are the ones that are most important to the people who are implementing Zero Based Budgeting.
So make sure that you spend some time identifying the pain points relevant to your organisations and divisions and take necessary measures to address them.
Final Thoughts
In conclusion, zero-based budgeting is a great way to implement change and track progress. Though it may take some time to get used to, the benefits are worth it. By being intentional with every penny, businesses can save money and improve efficiency. In order to use zero-based budgeting effectively, businesses should develop a very solid understanding of their organization’s financials. Knowing the cost of everything will help you to know where your money is being spent and therefore, where it can be saved.
Have tried to cover as much as possible under this article by keeping it short as well as informative enough to cover the key aspects.
Can be reached via email – 01prashanth@gmail.com or a private message on LinkedIn if you would like to discuss this topic further.
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